This article touches on some of my previous research looking at the success of Chinese state-owned exporters and also on some current research looking at the increasing internationalisation of Chinese firms.
The article provides food for thought. The internet expansion is where it will start but all Western companies need to be prepared now that China is upgrading and upskilling its workers and investing vast sums in research and development.
A new generation is taking power in China. Not the grey graduates of Communist Party committees. But aggressive, entrepreneurial and often colourful internet billionaires.
As well as influencing domestic politics, several plan to break out on to the world stage in 2014.They will be following a trail blazed by Huawei, the telecoms equipment maker. But with products and services that have much less to do with the critical infrastructure and ownership structures more familiar in the West, China’s internet giants are unlikely to hit similar trade and national security barriers.
Leading the charge is Jack Ma, the founder of Alibaba, an online bazaar that allows a business to sell almost any item to any other business.
On Alibaba you can buy a machine for converting used car tyres into fuel oil, a kilo of “good quality” toad venom extract, or a full-size Sponge Bob bouncy castle. Jeff Bezos wanted Amazon to be “the everything store”, but Ma built it first.
Most of the suppliers are, of course, Chinese, but Alibaba is increasingly used by exporters around the world and the company is in an enviable position to profit as trade becomes ever more global and online. The company predicts that Chinese e-commerce will be worth more than that of the United States and European Union combined by 2016.
“Increasingly we’re finding markets that were only buyers are increasingly suppliers too,” says James Hardy, head of Europe for Alibaba.com.
“Some decide on a strategy and then look for data to support it. Others, like Alibaba, look at data – both internal and external - and only then make strategic decisions about growth and market opportunity.
“The decision for us to enter the Russia and Brazil markets was the product of analysing external data and combining it with extensive internal data.”
Ma’s accomplishment makes him unique among China’s internet plutocracy. While other Chinese billionaires have built online empires that closely resemble Google or Twitter, Alibaba has no equivalent in the West. Amazon and eBay target consumers.
As such, Ma has been garlanded with awards by the Western business media in the last few years. Following the flotations of Facebook and Twitter, Wall Street is hungry for new technology stocks and would love to get its hands on Alibaba.
It is easy to see the attraction. Alibaba’s third-quarter revenues were up 60pc, to $1.73bn (£1bn). In the same period its profits more than doubled, to $717m, more than twice what Facebook makes on roughly the same sales. PrivCo, an investment research firm specialising in private companies, reckons Alibaba is “conservatively” worth $110bn, which would catapult Ma to the top of China’s rich list.
The NYSE, Nasdaq and the London Stock Exchange have been among the bourses courting Ma in the hope of securing a listing since his flotation talks with the Hong Kong stock exchange broke down in September.
Authorities on the island were concerned about Alibaba’s two-tier share structure, which gives Ma and other executives more voting power than ordinary shareholders. It is a common setup for Silicon Valley giants run by their founders, however, including Facebook and Google, as the New York exchanges were happy to point out.
The kowtowing to Ma can be seen as part of a bigger power shift for the technology industry to China, a country that has been mostly known as its assembly line.
The most striking example of the trend is Xiaomi, a three-year-old smartphone maker that counts the Russian billionaire Yuri Milner among its investors. It makes high-end devices that compete with the iPhone for the attention of wealthy young Chinese, and at the last count, was beating its Californian rival.
Though its smartphones are cheaper than Apple’s, they are not cheap to make. Xiaomi sees itself as an internet company striving to capture customers for its services, in the mould of Amazon’s Kindle Fire tablet business. Xiaomi is ferociously ambitious and has unusually sophisticated marketing for a Chinese consumer electronics maker.
Only last week it began its international expansion push in Singapore and its founder, Lei Jun, confidently announced that he aims to more double sales this year to 40m handsets. No Western rival would dare create such a hostage to fortune.
The prediction was delivered on Lei’s Sina Weibo account, the Chinese equivalent of Twitter. Sina, the company behind the service, is run by another of China’s technology elite, Charles Chao. Already listed on Nasdaq, Sina’s shares doubled last year on the growth of the service, which claims 600m users, not far short of Twitter.
Such is the influence of Sina Weibo in China that Eric Schmidt, the executive chairman of Google, has predicted it will play a major role in a gradual democratisation of the country.
“You simply cannot imprison enough Chinese people when they all agree to something. You won’t be able to stop it even if you don’t like it,” he said.
Sina Weibo has become the most open forum in Chinese media, yet it filled a vacuum left when censors cut off access to Twitter by agreeing to restrict certain subjects.
It is not the only one of China’s native internet powers to have benefited from a more cooperative approach to government. Baidu, China’s search engine, was helped when Google was forced out of China by a government row in 2010, and has an iron grip on the web search market.
The same cannot be said for WeChat, another internet service that Schmidt identified as a liberalising force in China. It is among a small group of smartphone apps that provide what amounts to free text messaging and is already in a fight with WhatsApp, the Western leader, and Line, a Korean-Japanese effort.
Each boasts hundreds of millions of users and is seeking more away from their home territory in the knowledge that scale usually wins online.
That battle is the sign of things to come as the globalising effect of the internet goes mobile and truly global. China’s internet powers are rising.